The Cyprus Stock Exchange (CSE) intends to align its fees with those of the Athens Stock Exchange as competition heats up among bourses vying for business and in anticipation of the launch of MiFID, which entails both challenges and opportunities.
CSE Chairman George Koufaris told the Financial Mirror in an exclusive interview that the CSE Council will soon come to a decision on how it will align its fees with those of the Athens Exchange (ATHEX), which has announced plans to cut fees on top of a pledge by the Greek Finance Minister to shed the government tax on equity trading as Greece rushes to meet the challenge from the introduction of MiFID.
The total fees and taxes imposed on a CSE round trade is estimated at around 0.8% ,including a government tax of 0.15% imposed on equity sales, whereas the same fees and taxes in
“Naturally I cannot speak on behalf of the Ministry of Finance with respect to the government tax levied when stocks are sold, but as far as the CSE fees and charges are concerned, I can assure you that we shall take a decision sometime in September/October, but well before the MiFID goes into effect,†Koufaris said.
He added that the CSE will introduce a new fee policy levied on listed companies based on traded volume and liquidity. He also placed particular emphasis on the CSE’s role of providing a safe, efficient and competitive clearing and settlement system, which a number of exchanges abroad do not provide, hence the difference in fees.
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— MiFID
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MiFID – the Markets in Financial Instruments Directive – comes into effect on November 1, when it will replace the existing Investment Services Directive (ISD).
MiFID introduces new and more extensive requirements that firms will have to adapt to, in particular for their conduct of business and internal organisation. MiFID upgrades and introduces operating a multilateral trading facility (MTF) as a new core investment service and sets out more detailed requirements governing the organisation and conduct of business of investment firms, and how regulated markets and MTFs operate.
It also includes new pre- and post-trade transparency requirements for equity markets.
In layman’s terms, with the introduction of the MIFID, two major banks with an authorised and regulated trading platform, say, in the
Authorised brokers with the right platform and capital could settle Bank of Cyprus trades among their clients and then do one bulk deal with another broker to settle the outstanding exposure.
In effect, the monopoly on stock trading, until recently given to the CSE for Cyprus stocks and the ATHEX on Greek stocks will cease to apply and all regulated, approved and authorised firms may engage in trading.
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— Not so fast…
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However, Koufaris told the Financial Mirror there are both challenges but also opportunities for the CSE as a result of the implementation of the MiFID, which as yet has not been approved in
“The immediate challenge is a squeeze on our fees, which means we need to accelerate plans to boost revenue from other sources,†Koufaris said, adding that the opportunities are plentiful since the CSE may provide clearing and settlement for major institutions wishing to trade in Cypriot stocks.
He also said that MiFID may have an immediate impact on more liquid and high volume markets, rather than smaller markets such as the CSE and even the ATHEX since new potential applicants need to pass a gruelling test and meet the strict requirements of the CySEC before they are allowed to undertake such a task.
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— More revenue… derivatives?
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The CSE nevertheless knows that the competition is already well ahead and that costs will be coming down, which is why it is rushing with plans to diversify and find alternative revenue sources.
The CSE has or is in the process of finalising MoU cooperation deals with the exchanges in Greece, Egypt, Israel, Jordan, Romania and Bulgaria, which includes training, joint products and the offering of specialised services at a fee.
The CSE is frustrated at the delay on the final decision to trade government bonds through the launch of primary dealers and a secondary market that needs to be taken by the Ministry of Finance after consultations with the Central Bank. While its plans to attract foreign funds to compete against
“A stand-alone derivatives market will have difficulty to survive, but a specialised index of the CSE’s major stocks will be very attractive,†said Koufaris.
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— Strong capital
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The CSE has the funds and capital to introduce new products and services to finance its new development plans, including a joint bid with the ATHEX seeking a 40% stake of the Bulgarian stock exchange.Â
In 2006, the CSE reported a net loss of CYP 15.000 (EUR 25,600) after covering a CYP 900.000 (EUR 1,54 mln) cost in a staff benefits scheme and fully funding the launch of the common trading platform with the ATHEX, estimated to have cost more than CYP 300.000 (EUR 513,000).
“We have CYP 8 mln (EUR 13,7 mln) in liquid funds to meet our development costs, of which CYP 2 mln (EUR 3,42 mln) has been allocated for a new head office,†Koufaris said.
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— Trusted place
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Koufaris said the CSE has come a long way from the 1999/2000 years, adding that equity investments is a safe and profitable area of activity. The CSE General index is up more than five times since it was launched at the 1000 base level in September 2004.
“We intend to launch a campaign to improve our image, boost our brand and attract new listings, funds and investors – both local and from abroad,†he said.
The first target group are pension and provident fund managers in
Koufaris disagrees with the recommendation by foreign experts who advised the government not to invest part of the CYP 3.3 bln (EUR 5,6 mln) capital of the Social Insurance Fund in CSE stocks.
“We intend to start discussions with the Ministry of Finance in order to convince them that the CSE is a safe place and from the track record since 2004, a very profitable place to be,†concluded Koufaris.
